Search This Blog

South Asia Investor Review is focused on reporting, analyzing and discussing the economy and the financial markets of countries in South Asia, including Pakistan, Bangladesh and Sri Lanka. For investors looking to invest in emerging markets beyond BRIC countries (Brazil, Russia, India and China), this blog is designed to help international investors looking to learn about investing in South Asia with focus on Pakistan. Riaz has another blog called Haq's Musings at http://www.riazhaq.com

Economic Inequality in India and Pakistan

Top 1% of Indians own 58% of wealth in India, according to a recent report by Oxfam as published by Wall Street Journal. The report said the global average for wealth ownership of the top 1% is 51%.

Source: Oxfam

The income and wealth concentration in the hands of the richest top 1% skews the average per capita incomes and makes the material well-being of average citizen look better than it is. The best way to measure how well or poorly an average citizen is doing is to look at the median income and wealth, not the average or mean. The median income reflects how much the person at the 50th percentile of the income distribution earns, giving us a better picture of the well-being of a “typical” individual in a given country. Similarly, median wealth represents how much wealth a person at the 50th percentile of the wealth distribution has accumulated.

It shows that India's urban median income is slightly higher than Pakistan's median income. However, India's rural median income is significantly lower than Pakistan's. It should be noted that 70% of India's population lives in rural areas, much higher than Pakistan's 61%, according to the World Bank.

Using India's Census figures of 30% urban and 70% rural population, the median per capita income for all of India works out to $1,040.25, about 15.8% lower than Pakistan's median per capita income of $1,204.50.

Average Pakistani adult is 20% richer than an average Indian adult and the median wealth of a Pakistani adult is 120% higher than that of his or her Indian counterpart, according to Credit Suisse Wealth Report 2016. Average household wealth in Pakistan has grown 2.1% while it has declined 0.8% in India since the end of last year.

Average wealth per adult in Pakistan is $760 more than in India or about 20% higher.

Median wealth per adult in Pakistan is $1,180 more than in India or about 120% higher

Summary:Median per capita income in Pakistan is 15.8% higher than in India, according to the World Bank PovcalNet figures. Median per capita wealth in Pakistan in Pakistan is 120% more than in India, according to Credit Suisse Global Wealth Report 2016. The median figures reflect the financial situation of the people at the 50th percentile of the income and wealth distributions in each country.

The income and wealth concentration in the hands of the richest top 1% skews the average per capita incomes and makes the material well-being of average citizen look better than it is. The best way to measure how well or poorly an average citizen is doing is to look at the median income and wealth, not the average or mean. Median income and wealth figures in South Asia show that average Pakistanis are better off economically than their counterparts in India.

"As Charles Wheelan writes in Naked Statistics: “The mean, or average, turns out to have some problems in that regard, namely, that it is prone to distortion by “outliers”, which are observations farther from the center.”

So basically, the Ambanis, Adanis, Birlas and Tatas, of the world, essentially India’s rich, push up the average income of India i.e. the per capita income. As Wheelan writes: “The average income...could be heavily skewed by the megarich.”

In this scenario, the average income does not give us a correct picture. Further, it is safe to say, that the income of the average Indian is lower than the average income of India.

At this point it is important to introduce another term i.e. the median. As Wheelan writes: “The median is the point that divides a distribution in half, meaning that half of the observation lie above the median and half lie below.”

Hence, the median income is the income of the average Indian. Given this, the median income is the right representation of the income of the average Indian. This is because the rich outliers (the Ambanis, the Adnanis, the Tatas and the Birlas) are taken into account. Data from World Bank shows that the top 10 percent of India’s population makes 30 percent of the total income. And this pushes up the per capita income."

Pakistan’s per capita income has marginally grown to $1,561 but targets to increase investment and savings – the two most critical economic indicators after national output goal – have been missed again during the outgoing fiscal year.

The government’s inability to increase investment as percentage of total size of national economy is probably the biggest failure after it failed to achieve outgoing fiscal year’s gross domestic product (GDP) target of 5.5%.

Per capita income: A Pakistani now makes $1,513 a year

Missing of the targets on savings, investment and GDP growth also puts a question mark over the acclaimed structural reforms introduced under the $6.2 billion International Monetary Fund bailout package.

Pakistan has one of the lowest investment and savings rates in the region and the world, obstructing progress towards a sustainable and inclusive economic growth path.

Slow progress on the China-Pakistan Economic Corridor due to lack of political vision and usual bureaucratic inefficiency also pulled back investments.

Sources said in dollar terms the per capita income has grown by only 2.9% to $1,561 – up $44 in the outgoing fiscal year 2015-16. Despite a marginal increase in per capita income, the country continues to be in the league of low middle-income countries. It needs to enhance per capita income to $4,000 to be labelled a middle-income country.

Pakistan faces Rs3.3 trillion revenue black hole, says IMF

In rupee terms, there was a 5.8% growth in per capita income that increased to Rs162,568.

To arrive at the per capita income figure, the Pakistan Bureau of Statistics – the government’s statistical arm – estimated about 2% growth in the country’s population that reached 193.56 million this year. It then divided the total national income with the number of people and arrived at per capita income of $1,561.

In absolute terms, the PBS has estimated addition of about five million people in a single year.

Like the previous year, in the current fiscal year too the federal government has again failed to deliver on the two most critical economic indicators. It missed the targets of investment and savings with wide margins.

The investment-to-GDP ratio slipped to 15.2% against the target of 17.7%, said the sources. The ratio was lower than last year’s revised rate of 15.5%. Savings remained almost stagnant at 14.5% of GDP, shy of the target of 16.8%.

Reports prepared by the World Bank (WB) have revealed that the per capita income of Indians is often more than the per capita income of the average Pakistani.Using the globally accepted Purchasing Power Parity or PPP method to analyze and compare the per-capita income of various nations, reports prepared by the World Bank found that every Indian earns around USD 5,630, while a Pakistani earns around USD 5,090.A closer look at the statistical evidence provided in these WB reports reveals that one U.S. dollar is equal Pakistani Rupees 10.4.56, while one U.S. dollar is equivalent to Indian Rs.67, and therefore, an Indian earns 54,000 Pakistani rupees more than his Pakistani counterpart or Indian Rs 36,100 more than what a Pakistani individual earns in a year.

The (World Bank) report ( The State of Social Safety Nets 2015) – which identifies India as a “lower middle income group” country – finds that all other BRICS countries, except China, spend a higher proportion of funds on social safety net. Thus, Brazil spends 2.42 per cent, Russia 3.30 per cent, China 0.70 per cent, South Africa 3.51 per cent, and South Africa 3.51 per cent of GDP. Interestingly, even the two of India’s neighbours – Pakistan and Bangladesh – spend a higher proportion on social safety net, 1.89 per cent and 1.09 per cent. The report says, “Despite having fewer resources for social safety nets, some lower-income countries allocate considerably more funds than the 1.6 percent average for developing countries”.

#India has been a post-truth society for years. #Modi #Trump #alternativefacts http://theconversation.com/india-has-been-a-post-truth-society-for-years-and-maybe-the-west-has-too-71169 … via @_TCGlobal

India: home of post-truth politics

That was the global context of post-truth politics and its advent in the West. But as the US and UK wake up to this new era, it’s worth noting that the world’s largest democracy has been living in a post-truth world for years.

From education to health care and the economy, particularly its slavish obsession with GDP, India can be considered a world leader in post-truth politics.

India’s post-truth era cannot be traced to a single year – its complexities go back generations. But the election of Narendra Modi in 2014 can be marked as a significant inflection point. Ever since, the country has existed under majoritarian rule with widely reported discrimination against minorities.

India’s version of post-truth is different to its Western counterparts due to the country’s socioeconomic status; its per capita nominal income is less than 3% of that of the US (or 4% of that of the UK). Still, post-truth is everywhere in India.

It can be seen in our booming Wall Street but failing main streets, our teacher-less schools and our infrastructure-less villages. We have the ability to influence the world without enjoying good governance or a basic living conditions for so many at home.

Modi’s government has shown how key decisions can be completely divorced from the everyday lives of Indian citizens, but spun to seem like they have been made for their benefit. Nowhere is this more evident than with India’s latest demonetisation drive, which plunged the country into crisis, against the advice of its central bank, and hit poorest people the hardest.

Despite the levels of extreme poverty in India, when it comes to social development, the cult of growth dominates over the development agenda, a trend that Modi has exacerbated, but that started with past governments.

The dichotomy of India’s current post-truth experience was nicely summed up by Arun Shourie, an influential former minister from Modi’s own party. He disagrees with the prime minister, just as many Republicans share sharp differences of opinion with President Trump.

Shourie said the policies of the current administration were equal to his predecessors’ policies, plus a cow.

------------...there is an argument to be made that the US and the UK have been living in denial of facts and evidence for years. In 2003, after all, both the countries went to war in Iraq over the false notion that Saddam Hussein was harbouring weapons of mass destruction.---------------Major social change does not happen within the space of a year. Yet, to a large number of observers around the world, the “post-truth” phenomenon seemed to emerge from nowhere in 2016.

Two key events of 2016 shaped our understanding of the post-truth world: one was in June, when Britain voted in favour of leaving the European Union. The other was in November, when political maverick Donald Trump was elected the 45th President of the United States of America. Trump’s administration spent the third day of his presidency speaking of “alternative facts”, and making false claims about the size of the crowds that had attended his inauguration.

For the rest of the world, the importance of both Trump and Brexit can best be gauged by understanding that they happened in the USA and in the UK. The UK was the key driving force of the world from the 19th century until the second world war, the US has been ever since. The US and the UK often have shared a similar point of view on many global geopolitical developments, as strategic allies or by virtue of their “special relationship”.

India is the second most unequal economy in the world, according to an Oxfam report released recently at the World Economic Forum. Oxfam India CEO Nisha Agrawal tells Himanshi Dhawan that demonetisation has only aggravated this inequality with no significant long-term benefits.

Oxfam’s new report ‘Economy for 99%’ claims that since 2015, eight men own the same amount of wealth as the poorest half of the world. In India, the richest 1% control 60% of the total wealth. Your comments?In 2016, India is the second most unequal economy after Russia. Inequality is fracturing our economy and the reality is that today 57 billionaires control 70% of India’s wealth. Even International Monetary Fund recently warned that India faces the social risk of growing inequality. As per IMF, India’s Gini coefficient rose to 51 by 2013, from 45 in 1990, mainly on account of rising inequality between urban and rural areas as well as within urban areas.India is currently too dependent on a regressive tax structure of indirect taxes and should move towards a more progressive taxation system that raises more tax revenues from the wealthy to fund more public expenditures on health and education to create a more equal opportunity country.What have been the reasons behind this growing inequality? Would you say successive governments have failed to address the concerns of the 99%?Over the last 25 years, the top 1% has gained more income than the bottom 50% put together. Far from trickling down, income and wealth are being sucked upwards at an alarming rate. Like many other countries, in India too policies have not focussed on raising the incomes of the poorest. India’s liberalisation in the early 1990s has seen an explosion in inequality since it created opportunities in a few high end sectors such as banking, IT, telecom and airlines that only created a handful of jobs for the highly skilled and educated. Not many policy reforms have happened either in agriculture or labour intensive manufacturing that could have created millions of jobs and raised incomes of the poor. Furthermore, not much effort has been made to raise more revenues and spend on basic education and health so that the poor could benefit from the opportunities being created.

India is a nation of caste and religion. It is a nation where caste is policy. Upper caste policy is to move upwards, while lower castes continually struggle in their lowly status.

Everything that happens here is based on caste. At every stage of our life caste becomes important. We are unable to understand what is going on in the country if we disregard caste. We also see Justice T S Thakur, who delivered the court ruling, through the eyes of caste because the surname, Thakur, also represents a caste.

When caste is so integral in our society how can we separate caste and religion - a solid foundation - from politics and elections?

There are three main parties in India today: the Congress Party, the ruling Bharatiya Janata Party (BJP) and the Communist Party. The Congress and BJP are outwardly "secular" parties. The BJP promotes itself as the party for Hindus, and on caste issues it says it is "secular". However they choose to self-define, if we search further, we find that the soul of these parties is brahminical, i.e. belonging to the highest caste.

The prominence of caste also applies to politics before India's independence. Priestly Brahmins who controlled the Bania caste - which had close business connections with them - have unjustly benefited from the new political reality, and that is why India's politics is called Brahmin-Bania politics.

-----------

In the first days of this year, in a landmark ruling, the Supreme Court of India banned political candidates from seeking election on the basis of caste, religion and language. On the surface, this ruling seems to be appealing to secular voters, upholding the secular values of the constitution and implementing the principles of democracy.

But it also seems to be contradicting a 1995 Supreme Court ruling which considered "Hindutva" (Hindu nationalism) and "Hinduism" a "way of life", rather than an ideology that belongs to a certain caste or religion. The court has been silent on reviewing the Hindutva issue.

There has been praise from seculars on the ruling and respect for the judiciary has further increased among ordinary people. But while the verdict is indeed an important new development, there are still questions about its practicality because caste, like religion, remains an integral part of Indian society.

Pakistan, often in the headlines for terrorism, coups and poverty, has developed something else in recent years: a burgeoning middle class that is fueling economic growth and bolstering a fragile democracy.

The transformation is evident in Jamil Abbas, a tailor of women’s clothing whose 15 years of work has paid off with two children in private school and small luxuries like a refrigerator and a washing machine.

For companies like the Swiss food maker Nestlé SA, such hungry consumers signal a sea-change.

“Pakistan is entering the hot zone,” said Bruno Olierhoek, Nestlé’s CEO for Pakistan, saying the country appears to be at a tipping point of exploding demand. Nestlé’s sales in Pakistan have doubled in the past five years to $1 billion.

Although often overshadowed by giant neighbors India and China, Pakistan is the sixth most-populated country, with 200 million people. And now, major progress in the country’s security, economic and political environments have helped create the stability for a thriving middle class.

An unpublished study last year that measured living standards, from Pakistani market research firm Aftab Associates, found that 38% of the country is middle class, while a further 4% is upper class. That’s a combined 84 million people—roughly equivalent to the entire populations of Germany or Turkey.

Such households are likely to have a motorcycle, color TV, refrigerator, washing machine and at least one member who has completed school up to the age of 16, the study found. Official figures show that the proportion of households that own a motorcycle soared to 34% in 2014 from 4% in 1991, and a washing machine to 47% from 13% over that same period. These trends are also attracting international business.

In December, Royal FrieslandCampina NV, a Dutch dairy company, paid $461 million to buy control of Engro Foods, a Pakistani packaged milk producer in a country where most milk is sold unpasteurized from open milk containers.

“What we see is consumer spending is rising and a middle class coming up,” said Hans Laarakker, Engro’s new chief executive.

Late last year, China’s Shanghai Electric Power agreed to pay $1.8 billion for a majority of Karachi’s electric supply company; Turkish electrical appliance maker Arçelik paid $258 million for a Pakistani appliance maker, Dawlance, saying Pakistan has an “increasingly prosperous working and middle class”; and French car maker Renault SA said it was seeking to set up a plant in Pakistan.

Meanwhile, during the past three years, deaths from terrorist attacks have fallen by two-thirds, as the army battles jihadists. Economic growth reached an eight-year high of nearly 5% in the past financial year, and China has begun a multibillion-dollar infrastructure investment program. The Karachi stock market rose 46% last year and continues to soar.

------

In the developing world, the ability to purchase durable goods such as motorcycles—which itself can lead to new opportunities in employment, education and leisure—is generally viewed as an indicator of a middle class lifestyle. Motorcycle purchases soared in Pakistan to 2 million a year now from 95,000 in 2000, leading Honda Motor Co. to double its production capacity there. Buyers of Honda’s cheapest motorcycle typically earn between just $200 and $300 a month, which would put them well below the poverty line in the West, but here that gives them disposable income.

“All these big companies globally, if they’re not looking at Pakistan, need to look at Pakistan, because it’s a huge consumption economy emerging,” said Saquib Shirazi, chief executive of Honda’s Pakistan joint venture.

India’s Finance Minister Arun Jaitley managed a fine balancing act in his budget announcement Wednesday, increasing spending to stimulate growth while at the same time ensuring the government’s financial health isn’t weakened.

Investors reacted positively to his announcements, as the benchmark stock index climbed as much as 1.8% after he presented the budget to Parliament.

Measures to boost a variety of sectors and strengthen the government’s efforts to fight corruption were unveiled. The focus, however, was on the country’s villages and small towns where job losses and hardships due to a cash shortage caused by the sudden withdrawal of 86% of currency have been felt the most.

We take a look at five big measures that were part of the budget:1 FEB 2017 8:07AMBY Anant Vijay Kala1 Relief for Farmers

Pressure was high on Mr. Jaitley to provide relief to people in India’s vast countryside, where farmers and contract workers employed on small wages had faced the brunt of a cash shortage caused by the currency withdrawal in November. Mr. Jaitley didn’t disappoint them.

The money that the government plans to spend on rural development next year has been increased by almost a quarter to 1.87 trillion rupees ($27.6 billion). The target of loans that banks are mandated to give to farmers has also been raised to a record 10 trillion rupees next year from 9 trillion rupees that was budgeted for the current year.2 More Spending on Infrastructure

India’s crumbling infrastructure is often cited as one of the biggest hurdles in the way of higher growth rates. According to government estimates, as much as $1 trillion is needed over the next few years to overhaul existing facilities and add new ports, roads and airports.

The latest budget earmarks about 4 trillion rupees to be spent on infrastructure. That is 10% higher than the 3.58 trillion rupees spent this year.3 Tax Cuts

Taxpayers in India, including companies, got some relief. The government halved the tax rate on incomes between 250,000 rupees and 500,000 rupees to 5%. Although the move is expected to cost the exchequer 155 billion rupees, it would come as welcome news to taxpayers who have been seeing their purchasing power erode due to high inflation.

Companies with turnover of up to 500 million rupees also saw their tax reduced to 25% from 30%. The government said such companies form 96% of the ones filing returns.4 New Rules on Funding of Political Parties

The government expanded its fight against corruption to political parties, which are infamous for a lack of transparency in their sources of funding. A cap of 2,000 rupees has been placed on cash donations, which are often used by donors to hide their identity. The government also proposed changes to regulations aimed at enabling the issue of so-called electoral bonds for receiving donations.5 Foreign Investors Weren't Left Out

The government has decided to disband a body that examined large foreign-investment proposals, to make it easier for overseas investors who want to spend money into India. Most such investors now won’t have to face the country’s bureaucratic red tape that led to delays. Those wanting to invest in India will now be permitted to do so unhindered, provided they inform the central bank.

The government also promised more measures to ease the rules for some key sectors where restrictions on overseas investments still apply.

#Pakistan's PAK ETF up 41.6% in a year. PAK still cheap on P/E basis with rising corporate earnings. http://www.investopedia.com/news/why-pakistan-etf-perky-pak/ …

Pakistan is among the frontier markets that are moving higher, but before jumping into the Global X MSCI Pakistan ETF (PAK), investors should evaluate the risks involved with a market such as Pakistan and the reasons Pakistani stocks are surging.

PAK, the lone exchange trade fund (ETF) listed in the U.S. dedicated to Pakistani equities, is up 41.6% over the past year. That performance is more than 1,500 basis points ahead of a widely followed frontier markets index, in which Pakistan is one of the largest country weights.

While frontier markets are often viewed as less desirable destinations for investors' capital than emerging markets, the reality is frontier economies have some advantages, including lower correlations to developed and emerging equities and, in some cases, less volatility.

With those advantages in mind, investors mulling a position in PAK should note Pakistan's time as a frontier market is limited. Last year, index provider MSCI said Pakistan become part of the widely followed MSCI Emerging Markets Index in May. That announcement was made just seven years after Pakistan was promoted to frontier status from the standalone classification. It also makes Pakistan the first country since Qatar and the United Arab Emirates in 2014 to earn the frontier-to-emerging promotion.

The promotion of Pakistan to emerging markets status means that active fund managers that benchmark to the MSCI Emerging Markets Index will have to buy Pakistani stocks to stay in-line with that index. With that promotion already widely known, Pakistani equities, including some of the 38 found in PAK, could already be soaring in anticipation of the frontier-to-emerging switch.

Several members of the KSE 100, Pakistan's benchmark equity index, have more than doubled over the past six months, including some financial services names. That sector represents over a third of PAK's weight. Materials and energy stocks combine for 46% of the ETF's lineup.

Although news of Pakistan's emerging markets promotion has been well telegraphed, Pakistani stocks still are not expensive. The KSE 100 trades at an earnings multiple of just under 11, a slight discount to the MSCI Emerging Markets Index. However, valuations on Pakistani stocks have been steadily rising since the third quarter.

Investors willing to wager on a further upside for PAK can take heart in knowing that earnings growth for Pakistani stocks is outpacing the relatively modest increase in the KSE 100's price-to-earnings ratio while also topping earnings growth for the broader emerging markets universe.

#Pakistan's PAK ETF up 41.6% in a year. PAK still cheap on P/E basis with rising corporate earnings. http://www.investopedia.com/news/why-pakistan-etf-perky-pak/ …

Pakistan is among the frontier markets that are moving higher, but before jumping into the Global X MSCI Pakistan ETF (PAK), investors should evaluate the risks involved with a market such as Pakistan and the reasons Pakistani stocks are surging.

PAK, the lone exchange trade fund (ETF) listed in the U.S. dedicated to Pakistani equities, is up 41.6% over the past year. That performance is more than 1,500 basis points ahead of a widely followed frontier markets index, in which Pakistan is one of the largest country weights.

While frontier markets are often viewed as less desirable destinations for investors' capital than emerging markets, the reality is frontier economies have some advantages, including lower correlations to developed and emerging equities and, in some cases, less volatility.

With those advantages in mind, investors mulling a position in PAK should note Pakistan's time as a frontier market is limited. Last year, index provider MSCI said Pakistan become part of the widely followed MSCI Emerging Markets Index in May. That announcement was made just seven years after Pakistan was promoted to frontier status from the standalone classification. It also makes Pakistan the first country since Qatar and the United Arab Emirates in 2014 to earn the frontier-to-emerging promotion.

The promotion of Pakistan to emerging markets status means that active fund managers that benchmark to the MSCI Emerging Markets Index will have to buy Pakistani stocks to stay in-line with that index. With that promotion already widely known, Pakistani equities, including some of the 38 found in PAK, could already be soaring in anticipation of the frontier-to-emerging switch.

Several members of the KSE 100, Pakistan's benchmark equity index, have more than doubled over the past six months, including some financial services names. That sector represents over a third of PAK's weight. Materials and energy stocks combine for 46% of the ETF's lineup.

Although news of Pakistan's emerging markets promotion has been well telegraphed, Pakistani stocks still are not expensive. The KSE 100 trades at an earnings multiple of just under 11, a slight discount to the MSCI Emerging Markets Index. However, valuations on Pakistani stocks have been steadily rising since the third quarter.

Investors willing to wager on a further upside for PAK can take heart in knowing that earnings growth for Pakistani stocks is outpacing the relatively modest increase in the KSE 100's price-to-earnings ratio while also topping earnings growth for the broader emerging markets universe.

The launch of Tesco Label products at Alpha Supermarkets in Pakistan was announced by the British High Commissioner Thomas Drew and Limestone Private Limited at the British Deputy High Commission in Karachi.

According to a statement issued by British Deputy High Commission here on Wednesday, the Tesco PLC is one of the world’s biggest companies and is a British multinational grocery and general merchandise retailer with stores in 12 countries across Asia and Europe.

Tesco products will soon be available at Alpha Supermarkets in Pakistan including food and nonfood items in three categories: Tesco Goodness, Tesco Finest and Tesco Everyday.

British High Commissioner to Pakistan, Thomas Drew, said on the occasion that ‘UK brands- especially those as big as Tesco’ have a real advantage in Pakistan, as British brands are so recognisable already to the many people in Pakistan who have visited the UK.

This is a particularly important year for this to be happening in Pakistan, as we are celebrating 70 years of UK-Pakistan relations.

While we will, of course, be remembering all the things that have linked us over the last 70 years, we are just as focused on the future of our relationship. At the heart of this will be increased trade between our two countries and I hope Tesco’s launch is just the start of a new era of British-Pakistani trade’.

Poorer countries are catching up with richer countries, the poorer Chinese provinces are catching up with the richer ones, but in India the less developed States are not catching up; instead they are, on average, falling behind the richer States. Internationally, growth rates of per capita GDP widened at least since the 1820s with poorer countries growing slower than richer countries, leading to the basic divide between advanced and developing countries characterised as “Divergence, Big Time” by Prof. Lant Pritchett of Harvard University. However, since 1980 this long-term trend was reversed and poorer countries started catching up with richer ones. In stark contrast, there continues to be divergence within India or an aggravation of regional inequality.

What is especially striking is how convergence has evolved over time. In the 1990s, convergence patterns were not dissimilar (Figure 2) across the world, China and India with either weak convergence or divergence. But things really changed for both the world and China in the 2000s; however they did not change for India. This was despite the promise that less developed States such as Bihar, Madhya Pradesh and Chhattisgarh had started improving their relative performance. But the data show that those developments were neither strong nor durable enough to change the underlying picture of divergence or growing inequality. The findings are similar when we use consumption per capita instead of GSDP per capita.

Therefore, the evidence so far suggests that in India, catch-up remains elusive. The opposing results in India versus those in China and internationally pose a deep puzzle. Convergence happens essentially through trade and through mobility of factors of production. If a State/country is poor, the returns to capital must be high and should be able to attract capital and labour, thereby raising its productivity and enabling catch-up with richer States/countries. Trade, based on comparative advantage, is really a surrogate for the movement of underlying factors of production as economist Paul Samuelson pointed out early on. A less developed country that has abundant labour and scarce capital will export labour-intensive goods (a surrogate for exporting unskilled labour) and import capital-intensive goods (a surrogate for attracting capital).

After getting ahead of India in equity market performance, Pakistan is getting ahead of India in another indicator: economic freedom ranking.

That’s according to the recent 2017 Index of Economic Freedom ranking, which places Pakistan in 141st position and India at 143th.

Published by the Heritage Foundation, the Economic Freedom report measures such things as trade freedom, business freedom, investment freedom, and the degree of property rights protection in 186 countries.

Pakistan’s lead over India in this ranking may not be big deal to most observers, as it is too narrow to be meaningful. Besides, both countries are ranking too close to the bottom.

Still, Pakistan’s ranking has been consistently outperforming India's in recent years.

Does it really matter to anyone?

Yes, to equity market investors. Gains in economic freedom ranking are usually associated with higher economic growth rates and higher equity markets. And the superior performance of Pakistan’s market over that of India’s might as well be a reflection of it.

----------

Here is a quote from the Pakistan report. “Pakistan has pursued reforms to improve its entrepreneurial environment and facilitate private-sector development. The financial sector has undergone modernization and restructuring.”

And a quote from the Indian report. “The state maintains an extensive presence in many areas through public sector enterprises. A restrictive and burdensome regulatory environment discourages the entrepreneurship that could provide broader private-sector growth.”

Simply put, while Pakistan is trying to place economic growth in the hands of entrepreneurs, India insists to place economic growth in the hands of government bureaucrats.

That’s certainly good news for the future of Pakistan’s economy and equity markets.

World Happiness 2017 ranks Pakistan well ahead of the rest of SAARC nations. Nepal's at 99, Bhutan at 97, Bangladesh at 110, Sri Lanka at 120, India at 122 and Afghanistan at 141 among 155 nations surveyed.

Norway moved from No. 4 to the top spot in the report’s rankings, which combine economic, health and polling data compiled by economists that are averaged over three years from 2014 to 2016. Norway edged past previous champ Denmark, which fell to second. Iceland, Switzerland and Finland round out the top 5.

Studying happiness may seem frivolous, but serious academics have long been calling for more testing about people’s emotional well-being, especially in the United States. In 2013, the National Academy of Sciences issued a report recommending that federal statistics and surveys, which normally deal with income, spending, health and housing, include a few extra questions on happiness because it would lead to better policy that affects people’s lives.

The entire top ten were wealthier developed nations. Yet money is not the only ingredient in the recipe for happiness, the report said.

In fact, among the wealthier countries the differences in happiness levels had a lot to do with “differences in mental health, physical health and personal relationships: the biggest single source of misery is mental illness,” the report said.

“Income differences matter more in poorer countries, but even their mental illness is a major source of misery,” it added.

Another major country, China, has made major economic strides in recent years. But its people are not happier than 25 years ago, it found.

The United States meanwhile slipped to the number 14 spot due to less social support and greater corruption; those very factors play into why Nordic countries fare better on this scale of smiles.

“What works in the Nordic countries is a sense of community and understanding in the common good,” said Meik Wiking, chief executive officer of the Happiness Research Institute in Copenhagen, who wasn’t part of the global scientific study that came out with the rankings.

The rankings are based on gross domestic product per person, healthy life expectancy with four factors from global surveys. In those surveys, people give scores from 1 to 10 on how much social support they feel they have if something goes wrong, their freedom to make their own life choices, their sense of how corrupt their society is and how generous they are.

WEALTH and income inequality have risen sharply around the world in the past few decades, with data suggesting an acceleration in the trend over the recent past. This state of affairs has occurred despite massive economic prosperity having been generated over the same period of time, which has lifted millions around the globe out of extreme poverty.

However, economic prosperity has not been shared equitably. According to Oxfam, “since 2015, the richest one per cent has owned more wealth than the rest of the planet”. Earlier this year, Oxfam reported that eight of the richest men in the world now owned the same amount of wealth as the poorest half of the world (3.6 billion people).

Between 1988 and 2011, incomes of the poorest 10pc increased by just $65 per person — or less than $3 annually — compared to the incomes of the richest 1pc which grew by $11,800 per person, or 182 times as much. In the US, the situation with regards to income inequality is even more extreme. According to research by the French economist Thomas Picketty, over the last 30 years the growth in the incomes of the bottom 50pc has been zero, whereas incomes of the top 1pc have grown 300pc.

The situation in Pakistan appears to have followed a similar trend. While the Planning Commission has stopped making public statistics on income inequality for the past few years, evidence suggests that the disparity between the richest and the poorest households has increased. According to the Household Integrated Economic Survey (HIES) 2015-16, the share of the top 20pc of households in overall income is nearly 45pc, while for the bottom 20pc the share is slightly less than 9pc — a multiple of 5 times.

Inequality has broader dimensions beyond wealth or income.

While looking at inequality through the prism of income or wealth distribution is instructive, it tells a less than complete story. For a country like Pakistan, the inequality in society is multidimensional — with deep structural as well as institutional roots. The poor and vulnerable are discriminated against, face exclusion and marginalisation in a structured and institutionalised manner. Hence, for a proper understanding of the issue, one has to map the broad areas and extent of ‘non-inclusion’ of citizens, not just the inequitable distribution of wealth/income.

Per Capita Income in dollar terms has witnesseda growth of 6.4 percent in FY 2017 ascompared to 1.1 percent last year. The percapita income in dollar terms has increasedfrom $ 1,531 in FY 2016 to $ 1,629 in FY2017. Main contributing factors for the rise inper capita income are higher real GDP, growth,low population growth and stability of PakRupee.

COUNTRIES find it easier to get rich once their neighbours already are. East Asia’s growth pattern has for decades been likened to a skein of geese, from Japan at the vanguard to laggards such as Myanmar at the rear. The same pattern can often be seen within big countries. Over the past decade, for example, China’s poorer provinces have grown faster than their wealthier peers. India is different. Far from converging, its states are getting ever more unequal. A recent shake-up in the tax system might even make matters worse.

Bar a few Mumbai penthouses and Bangalore startup offices, all parts of India are relatively poor by global standards. Taken together, its 1.3bn people make up roughly the third and fourth decile of the world’s population, with an income per person (adjusted for purchasing power) of $6,600 dollars. But that average conceals a vast gap. In Kerala, a southern state, the average resident has an annual income per person of $9,300, higher than Ukraine, and near the global median. With just $2,000 or so, an Indian in Bihar, a landlocked state of 120m people, is closer to a citizen of Mali or Chad, in the bottom decile globally.

The gap has been widening. In 1990, point out Praveen Chakravarty and Vivek Dehejia of the IDFC Institute, a think-tank, India’s three richest large states had incomes just 50% higher than the three poorest—roughly the same divergence as in America or the EU today, and more equal than in China. Now the trio is three times richer (see chart).

In some rich parts of the world, income gaps between regions have in recent decades been widening. But India’s experience still puzzles economists. Poor regions benefit from technology developed in richer ones—from trains to mobile phones. Workers in poorer places accept lower wages, so firms build new factories there.

The catch-up process ought to be all the faster if barriers to the movement of goods or people are lower. Regions within China have converged rapidly, partly owing to the market, as factories move production inland where wages are cheaper, and partly to government attempts to lift poorer regions by investing heavily in their infrastructure.

Arvind Subramanian, chief economic adviser to India’s government, earlier this year wrote that its states’ divergence is “a deep puzzle”. The brief bout of liberalisation in 1991 probably played a part initially, by unevenly distributing the spoils of more rapid overall economic growth. But that burst of inequality should have self-corrected by now.

One theory blames the states’ divergence on their isolation even in the Indian domestic market, as a result of lousy infrastructure, red tape and cultural barriers. Moving stuff from state to state can be as tiresome as exporting. Internal migration that would generate catch-up growth is stymied by cultural and linguistic barriers: poor northern states are Hindi-speaking, unlike the richer south. Cuisines differ enough for internal migrants to grumble. It is harder to have access to benefits and state subsidies outside your home state.

Mr Subramanian thinks such arguments are overdone. India may not have mass migration on the scale that transformed China, but it is still sizeable, he argues, and has been rising as a share of the population even as convergence has gone into reverse. Inter-state trade is healthy, suggesting suitably porous borders.

Another theory looks at India’s development model. Growth has relied more on skill-intensive sectors such as IT than on labour-intensive manufacturing. This may have stymied the forces of convergence seen elsewhere, Mr Subramanian posits. Perhaps, however low their labour costs, the poorer places lack the skills base to poach jobs from richer rivals.

The rising number of its billionaires masks #India’s widening income #inequality. #Modi #BJP https://qz.com/1070450 via @qzindia

India is staring at a staggering income-inequality crisis.A research paper published by French economist Thomas Piketty and Lucas Chancel—based on the latest income tax data—suggests that inequality in India may be at its highest level since 1922, when India introduced the income tax.The share of national income held by the top 1% of the country’s population has increased dramatically, particularly since the 1980s, the economists say in their paper published on Sept. 05 (pdf).

“The top 1% of earners captured less than 21% of total income in the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today,” the paper says.Piketty is widely recognised for his work on income inequality, particularly through his bestselling book Capital in the Twenty-First Century. Chancel is the co-director of the World Inequality Lab and of the World Wealth & Income Database (WID.world) at the Paris School of Economics.Their study shows that income inequality was the lowest in the 1970s and 1980s, a period when India was still a government-controlled economy and its GDP growth was quite low.“Over the 1951-1980 period, the bottom 50% group captured 28% of total growth, and incomes of this group grew faster than the average, while (the) top 0.1% incomes decreased,” their paper says. “Over the 1980-2014 period, the situation was reversed; the top 0.1% of earners captured a higher share of total growth than the bottom 50% (12% vs. 11%), while the top 1% received a higher share of total growth than the middle 40% (29% vs. 23%).”

Last year, a report by Credit Suisse Research Institute said that the top 1% of the country’s population held 58.4% of its wealth, up from 53% in 2015. Within the BRICS group, only Russia’s wealthy controlled more of their country’s wealth. Since 2010, India has added a billionaire every 33 days and Indians’ share in the global billionaires’ club has grown from 1% to 5% over the last 20 years.Meanwhile, Piketty has also reiterated his demand for more transparency in sharing income tax data. Access to data is crucial in measuring inequality and understanding the distribution of wealth. India used to publish the All India Income Tax Statistics until 2000. In 2016, the income tax department released tax tabulations for the period between 2012 and 2014.

BBC News - #Inequality in #India is the highest level in 92 years. Top 1% take 22% of income. Top 1% own 58% wealthhttp://www.bbc.com/news/world-asia-india-41198638#

New research by French economists Lucas Chancel and Thomas Piketty, author of Capital, the 2013 bestselling book on capitalism and increasing inequality, clearly points to this conclusion.They studied household consumption surveys, federal accounts and income tax data from 1922 - when the tax was introduced in India - to 2014.The data shows that the share of national income accruing to the top 1% of wage earners is now at its highest level since Indians began paying income tax.The economists say the top 1% of the earners captured less than 21% of the total income in the late 1930s, before dropping to 6% in the early 1980s and rising to 22% today. India, in fact, comes out as a country with one of the highest increase in top 1% income share concentration over the past 30 years," they say.

To be sure, India's economy has undergone a radical transformation over the last three decades.Up to the 1970s, India was a tightly regulated, straitlaced economy with socialist planning. Growth crawled (3.5% per year), development was weak and poverty endemic.Some easing of regulation, decline in tax rates and modest reforms led to growth picking up in the 1980s, trundling at around 5% a year. This was followed by some substantial reforms in the early 1990s after which the economy grew briskly, nudging close to double digits in the mid-2000s.

Growth has slowed substantially since then, but India still remains one of the fastest-growing economies in the world. The ongoing slowdown - growth was 5.7% in the April-June quarter, the slowest pace in three years - largely triggered by feeble demand, a controversial cash ban, declining private investment and weak credit growth, is a cause for concern.And the need for fast-paced growth, according to Nobel Prize winning economist Amartya Sen, is "far from over since India, after two decades of rapid growth, is still one of the poorest countries in the world".From their latest work on income inequality, Lucas Chancel and Thomas Piketty contend that there has been a "sharp increase in wealth concentration from 1991 to 2012, particularly after 2002". Also, they conclude, India has only been really shining for the top 10% of the population - roughly 80 million people in 2014 - rather than the middle 40%.The economists plan to release the first World Inequality Report, produced by a network of more than 100 researchers in December, where they will compare India's inequality with other countries and suggest ways to tackle it.Striking transitionThey agree that unequal growth over a period of time is not specific to India, but market economies are not bound to be unequal. India's case is striking in the fact that it is the country with the highest gap between the growth of the top 1% and that of the full population. Incomes of those at the very top have actually grown at a faster pace than in China.The economists contend that the growth strategy pursued by successive governments has led to a sharp increase in inequality. China also liberalised and opened up after 1978, and experienced a sharp income growth as well as a sharp rise in inequality. This rise was however stabilised in the 2000s and is currently at a lower level than India.In Russia, the move from a communist to a market economy was "swift and brutal" and today has a similar level of inequality to India."This shows that there are different strategies to transit from a highly regulated economy to a liberalised one. In the arrays of possible pathways, India pursued a very unequal way but could probably have chosen another path," Dr Chancel told me.

The relationship between economic growth and employment is an important issue in economics discourse. Promotion of inclusive growth also requires economic growth processes to be employment friendly. The measure that captures the employment effect of economic growth is the "employment elasticity" of economic growth, which is the ratio of percentage change in employment to the percentage change in real gross domestic product (GDP).

We have calculated the employment elasticity with respect to the change in real GDP for the South Asian countries for three different periods from 2001 to 2015. There are mixed patterns among the South Asian countries. During 2001 and 2005, Maldives had the largest employment elasticities (1.39) and Sri Lanka had the lowest one (0.08). India, with a share of 75 percent of the total population in South Asia, had the employment elasticity of only 0.38, one of the lowest in South Asia. Two other large countries, Pakistan and Bangladesh, had employment elasticities of 0.70 and 0.77 respectively.

For the period of 2006-2010, India experienced a drastic fall in employment elasticity to only 0.03 despite the fact that the average GDP growth rate of India increased from 6.6 percent (2001-2005) to more than 8 percent (2006-2010). Over these periods, Bangladesh also had a similar experience where employment elasticity declined from 0.77 to 0.4 in the wake of a rising average GDP growth rate from 5 to 6 percent. While Afghanistan, Maldives, and Nepal also experienced a decline, Pakistan and Sri Lanka could increase the elasticities.

Over the recent period between 2011 and 2015, Bangladesh experienced a further fall in the employment elasticity to 0.28, while India's improvement is meagre (from 0.03 to only 0.09). Despite the slower economic growth rates during this period, Afghanistan, Maldives, Nepal, and Pakistan could increase their employment elasticities. Sri Lanka had a further fall in employment elasticity to only 0.14. During this period, India had the least employment elasticity among all South Asian countries.

The aforementioned analysis points to the concern that two major South Asian countries, India and Bangladesh, experienced a substantial reduction in employment elasticities throughout the periods of high economic growth. While during 2001 and 2005, the annual average job creation in Bangladesh and India were 1.6 million and 11.3 million respectively, in 2011-2015, such numbers declined to 1 million and 3.2 million for Bangladesh and India respectively. Most of the other South Asian countries experienced either volatile, or slow or stagnant economic growth, and therefore, despite a rise in employment elasticities, the actual employment generation in these countries had not been substantial. It is also important to mention that while SDG 8 talks about ensuring "decent" jobs for all, South Asian countries are seriously lagging far behind. In most of the South Asian countries, there are persistent employment challenges such as lack of economic diversification, poor working conditions, low productivity and a high degree of informality. This is reflected by the fact that among the top five countries in the world with very high proportion of informal employment in total employment, four are from South Asia (Bangladesh, India, Nepal, and Pakistan).

Popular posts from this blog

San Francisco based Cloudcade has announced it will invest $6 million to set up a game development studio in Lahore, Pakistan, according to Venturebeat.

The Lahore studio will be led by Ammar Zaeem, cofounder of Pakistan’s mobile game studio Caramel Tech which already has a team of 50 engineers.
The move is a big investment into Pakistan as a tech hub, and it shows how the game business is expanding around the globe.

Cloudcade:

Founded by Di Huang in 2013, Cloudcade is known for its popular multiplayer game "Shop Heroes" that pits players against each other in a competition to create the best shop they can. If a player can make a better store and perform more tasks than his or her rivals, he or she wins.

The game is available on the Apple iOS App Store, Google Play, Samsung Galaxy Store, Amazon, Kongregate, and Facebook. It is now also supported on the Apple Watch.

43.5% of Indians, the highest percentage in the world, say they do not want to have a neighbor of a different race, according to a Washington Post report based on World's Values Survey.

About Pakistan, the report says that "although the country has a number of factors that coincide with racial intolerance – sectarian violence, its location in the least-tolerant region of the world, low economic and human development indices – only 6.5 percent of Pakistanis objected to a neighbor of a different race. This would appear to suggest Pakistanis are more racially tolerant than even the Germans or the Dutch".

Housing Discrimination:

It appears that there is a small but militant minority in Pakistan that is highly intolerant, but the vast majority of people are tolerant. My own experience as a former Karachi-ite is that there is little or no race or religion based housing segregation, the kind that is rampant in India where Muslims are not welcome in most Hindu-dominated neigh…

Pakistan's human development ranking plunged to 150 this year, down from 149 last year. It is worse than Bangladesh at 136, India at 130 and Nepal at 149. The decade of democracy under Pakistan People's Party and Pakistan Muslim League (Nawaz) has produced the slowest annual growth rate in the last 30 years. The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President Musharraf's rule, according to the latest Human Development Report 2018.

Human Development in Pakistan:

UNDP’s Human Development Index (HDI) represents human progress in one indicator that combines information on people’s health, education and income.

Pakistan saw average annual HDI (Human Development Index) growth rate of 1.08% in 1990-2000, 1.57% in 2000-2010 and 0.95% in 2010-2017, according to Human Development Indices and Indicators 2018 Statistical Update. The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President M…

I am the Founder and President of PakAlumni Worldwide, a global social network for Pakistanis, South Asians and their friends. I also served as Chairman of the NEDians Convention 2007. In addition to being a South Asia watcher, an investor, business consultant and avid follower of the world financial markets, I have more than 25 years experience in the hi-tech industry. I have been on the faculties of Rutgers University and NED Engineering University and cofounded two high-tech startups, Cautella, Inc. and DynArray Corp and managed multi-million dollar P&Ls. I am a pioneer of the PC and mobile businesses and I have held senior management positions in hardware and software development of Intel’s microprocessor product line from 8086 to Pentium processors. My experience includes senior roles in marketing, engineering and business management. I was recognized as “Person of the Year” by PC Magazine for my contribution to 80386 program. I have an MS degree in Electrical engineering from the New Jersey Institute of Technology.
www.pakalumni.com
http://www.riazhaq.com
http://southasiainvestor.blogspot.com